Evaluating Berkshire Hathaway’s Investment in Snowflake: A Long-Term Perspective
Warren Buffett, the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), manages a substantial portfolio valued at $287 billion. His straightforward investing approach has yielded market-beating returns for an impressive 59 years. Buffett focuses on companies demonstrating steady growth, reliable profits, and strong management teams, favoring those with shareholder-friendly practices like dividends and stock buyback programs. Notably, he does not pursue the latest market trends, even those as compelling as artificial intelligence (AI).
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In 2020, Berkshire invested in a cloud computing firm called Snowflake (NYSE: SNOW). Initially, it did not check many of Buffett’s boxes, leading to the decision to divest in 2024. Since then, Snowflake’s stock has surged about 30%. As a result, investors are questioning whether Berkshire exited too early and whether this represents a long-term buying opportunity.
Image source: Getty Images.
Snowflake’s Strategic Focus on AI
Snowflake’s Data Cloud allows organizations to consolidate their data on a single platform for more effective analysis. This functionality is crucial for large enterprises that often have data dispersed across multiple cloud providers, resulting in fragmented data silos.
As data is essential for many AI applications, Snowflake has positioned itself as a valuable resource for developing and implementing this groundbreaking technology. In late 2023, it launched its Cortex AI platform, giving businesses access to large language models (LLMs) from notable companies like Anthropic, OpenAI, DeepSeek, and Meta Platforms. Businesses can incorporate their internal data into these models to create tailored AI solutions.
This year, Snowflake expanded Cortex by introducing Cortex Agents, which businesses can use to develop virtual assistants for specific tasks. For instance, an intelligent sales assistant can analyze data and conversation transcripts, quickly locating crucial information to save employees precious time otherwise spent searching through documents.
As of the end of fiscal 2025 (January 31), Snowflake had 11,159 total customers, with over 4,000 using its AI products weekly. This illustrates the growing adoption of its innovative solutions.
Concerns About Revenue and Losses
When Berkshire initially invested in Snowflake ahead of the company’s IPO in 2020, it reported exceptional annual revenue growth. However, Snowflake has seen a notable deceleration in revenue growth despite spending heavily to acquire customers and develop new products.
For fiscal 2025, Snowflake reported a record $3.4 billion in product revenue, reflecting a growth rate of 30%—the slowest since going public. Operating expenses also rose by 28.8% to $3.8 billion, primarily due to a 38.5% increase in research and development aimed at bolstering its AI initiatives. Consequently, the company incurred a significant net loss of $1.3 billion, up 53.7% from the previous year.
This aggressive spending strategy implies the company’s bet on AI might yield future benefits. Encouragingly, Snowflake’s remaining performance obligations (RPOs) rose by 32.6% year over year in the fourth quarter of fiscal 2025, reaching $6.8 billion. This performance metric signals strong future demand for its services. However, management estimates only 48% of these RPOs will convert into revenue in the next year, which raises questions about future growth prospects.
Looking ahead, management’s projections for fiscal 2026 indicate product revenue of $4.2 billion, representing a growth rate of just 24%.
Valuation Concerns Surrounding Snowflake Stock
While the exact price Berkshire paid for Snowflake during its IPO at $120 per share remains unclear, the company sold its entire stake in the second quarter of 2024, around the time the stock was trading at $135. Thus, Berkshire likely saw a modest return of approximately 12.5% over the four-year period. This return pales compared to the conglomerate’s average annual return of 19.9% since 1965, indicating that Snowflake was a drag on its overall performance.
Since Berkshire’s exit, Snowflake’s share price has increased by 30%, prompting speculation over a potential misstep. However, given its high valuation and the combination of slowing growth and substantial losses, justifying its current price remains challenging. With a price-to-sales (P/S) ratio of 16.2, Snowflake appears substantially more expensive than other cloud and AI leaders like Microsoft, Alphabet, and Amazon.
Data by YCharts.
It’s important to note that Buffett likely did not make the final decision to add Snowflake to Berkshire’s portfolio, as he typically favors businesses with consistent profitability and uncomplicated operations.
Buffett’s Berkshire Hathaway Divests Snowflake Stock Amid Valuation Concerns
Warren Buffett fully understands the dynamics of the market, but early-stage technology companies do not typically fall within his investment strategy. His previous purchases, such as Coca-Cola and Bank of America, illustrate this preference.
It’s likely that one of Buffett’s lieutenants orchestrated the sale of Snowflake stock. Given its current valuation and business conditions, the decision to sell did not raise my eyebrows. Missing out on potential future growth does not equate to making a wrong decision. Investors must rely on available information, and earlier outlined challenges suggested that Snowflake might struggle to maintain its upward trajectory.
Consequently, I believe investors should heed Berkshire’s example and consider remaining cautious regarding Snowflake Stock.
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Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, is also a board member. Suzanne Frey, an executive at Alphabet, serves on the board too. Anthony Di Pizio has no holdings in the mentioned stocks. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Meta Platforms, Microsoft, and Snowflake. The Motley Fool recommends options including long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
